enduranceal" <taxman99[at]aol.com> wrote:

- quote -

I don't want to seem overly critiical but I see a potential
ethics violation here. You do not indicate your
professional qualifications, either. For CPAs, at least, it
is unethical to accept an engagement for which the CPA does
not have the necessary professional competence. If you had
never done an S-corp return, you should have done come very
specific CPE on the subject before undertaking the
preparation of this return. Even now, I don't think you
fully understand the requirements of an S-corp.

In any case, because the S-corp is a separate legal entity
from the owner, the earnings are the corporations, not the
owners. The S election is merely an option given to small
businesses to use an alternate method of computing taxes --
the income is still that of the corporation.

What you need to do is to look at the other expense
deductions because there are some specific limitations on
deductions by an S-corp that do not apply to C-corps or to
partnerships.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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enduranceal wrote:

- quote -

Yes, you're right, S corporations are treated differently
from other flowthrough entities in this regard. He is an
employee, as you said, and the corporation must pay him a
salary commensurate with the value of the services he
performs for it. If the corporation's income arises
primarily from the services he performs, most of its
pre-salary net income should be treated as his wages. If
the corporation has other employees or significant assets
that contribute to the earning of income, a smaller
percentage of the total income can be treated as wages.

There aren't any bright lines for this. You just have to
figure out what is reasonable based on the facts and
circumstances. What would a third party pay him to do the
same thing? etc.

Katie in San Diego

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

And old client of mine came into my office today (4 days
before March 15th) and told me he had formed an S-Corp. for
2005. He is the only stockholder. I decided to do his
S-Corp return even though I have never done a S-Corp.
before. I thought that because I am fairly experienced
in doing partnership returns it would be similar. (I have
also done several returns with a Sch. K-1 from a S-Corp) I
got around to completing the K-1 form and started completing
his individual return when I noticed that the social
security tax was not being calculated on his individual
return. I did some research and it seems that the S-Corp
works differently from a partnership and the Social Security
tax on a S-Corp is paid via quarterly reports. No social
security tax is paid on income from the S-Corp. on his
individual return. (Completely different from sole
propietorship or general partnership)

Does this mean that I must now file quarterly returns for
the past year, W-2, etc? In other words he is not only the
only stockholder but an employee just like any other
employee at any other job.

Am I seeing this correctly.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >